US judge mulls violation of Argentina debt ruling

MICHAEL WARRENAugust 29, 2013

BUENOS AIRES, Argentina (AP) — Argentina could be in trouble with a New York judge who wants to know why the government of President Cristina Fernandez shouldn’t immediately face the consequences of its losing fight over defaulted debt.

Argentina still has a slim hope that the U.S. Supreme Court will accept its appeal, and the lower courts have stayed their rulings that the government must pay about $1.4 billion to make good on bond debts unpaid since the country’s 2001 economic crisis.

But the stays are in question now that Argentine President Cristina Fernandez decided to defy the U.S. courts by offering another debt swap instead, even before its appeals are exhausted. That plan is being fast-tracked by Congress, which her ruling party controls, with approval expected by mid-September.

Argentina gained at least a few days of breathing room on Thursday when U.S. District Judge Thomas Griesa adjourned a hearing on whether that move violates his order to avoid moves that affect bondholders’ interests. Court spokeswoman Stephanie Cirkovich said a new date for the hearing has not been set.

Argentina has already ignored many orders from international courts and arbitrators. But doing so this time could lead the judge to sanction the U.S. bank that Argentina uses to pay its bondholders, and that could push Argentina into default.

Investors holding more than 92 percent of Argentina’s defaulted debt agreed in 2005 and 2010 to write off two-thirds of their pre-crisis value, providing debt relief that enabled the economy to rebound. Fernandez has refused to reward the plaintiffs she considers to be “vulture funds” with any better terms.

Economy Minister Hernan Lorenzino told senators Wednesday that this third debt swap would offer the same terms as the earlier ones. This time, however, the arrangement would avoid any banks or conditions subject to U.S. law. The new bonds would be paid by Argentina’s Banco Nacion using foreign reserves held by its Central Bank.

Griesa ruled last year that whenever Argentina tries to make payments on the earlier bonds through the Bank of New York, U.S. financial entities must first make sure that the plaintiffs have already been paid an equal amount in cash. His decision was upheld last week by the federal appeals court in lower Manhattan.

The next such payment is due on Sept. 30.

Lorenzino reiterated Wednesday that the government has no intention of paying the NML Capital Ltd. and other plaintiffs beforehand, but will do everything it can to ensure timely payments to the other 92 percent.

“Argentina will pay,” Lorenzino said. “We ask the courts of the United States to let us pay the restructured bonds, but if they obligate us so that the money that enters has to go first to the vultures, then we won’t be able to pay the rest. This isn’t rebellion; it’s common sense.”